FTX's Billion-Dollar Legal Battle Against Bybit

FTX's billion-dollar lawsuit against Bybit and its investment arm, Mirana, aims to recover funds and digital assets withdrawn from FTX before its collapse.

Nov 13, 2023 - 13:54
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FTX's Billion-Dollar Legal Battle Against Bybit
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FTX, under the leadership of CEO John J. Ray III, has initiated a billion-dollar lawsuit against Bybit and its investment arm, Mirana, along with several executives. This legal move aims to recover a substantial amount of funds and digital assets that were withdrawn from FTX just before its collapse. 

The FTX bankruptcy estate's lawsuit against Bybit and its related entities is a significant legal action that seeks to recover almost $1 billion in assets. These assets were reportedly withdrawn from FTX in a period leading up to its collapse, raising questions about the circumstances and legality of these withdrawals.

FTX alleges that Bybit utilized its "VIP" status and connections with FTX staff to facilitate substantial withdrawals of cash and digital assets. The lawsuit accuses Bybit and its affiliates of prioritizing their withdrawal requests, leading to transfers exceeding $327 million to Mirana alone. The total value of assets withdrawn by Bybit and its executives from FTX is estimated to be close to $1 billion.

The lawsuit's roots can be traced back to the events surrounding FTX's difficulties with withdrawals in November 2022. During this tumultuous period, FTX employees reportedly managed VIP customers' withdrawal requests through a specific process, giving priority to certain entities like Mirana.

The lawsuit alleges that in October 2021, an executive from Bybit confidentially disclosed to FTX that Bybit was in fact controlling BitDAO, which was publicly represented as a decentralized organization governed by its community. This entity is currently known as Mantle. Subsequently, in May 2023, Bybit proposed to the FTX bankruptcy estate the idea of reversing a particular transaction. This suggestion was made despite the disparity in the value of the involved tokens: BIT tokens were valued at around $50 million, significantly higher than the FTT tokens, valued at about $4 million at that time.

Following FTX's refusal of what it deemed an unreasonable proposal, BitDAO quickly underwent a rebranding to become Mantle. This rebranding included the introduction of MNT tokens, offering BIT holders the option to exchange their tokens at a one-to-one ratio. However, as FTX initiated this conversion process, BitDAO is accused of intervening by disabling the conversion and organizing a "community vote" to determine whether to prevent FTX from converting its tokens.

The lawsuit further states that FTX notified Bybit that such actions were in violation of the automatic stay provisions under Chapter 11 bankruptcy. Despite this warning, the "community vote" was carried out and reportedly passed, with indications that Bybit executives influenced the voting. Notably, a significant vote came from the wallet "dtoh.eth," which is identified as belonging to Mirana Ventures, a subsidiary of Mirana led by David Toh.

It also allegedly states that Bybit has imposed restrictions on the FTX estate, limiting the withdrawal of assets exceeding $125 million on the Bybit exchange. Bybit is accused of using these assets as leverage to recover a remaining balance of $20 million that it could not withdraw from FTX.

The lawsuit seeks both compensatory and punitive damages from Bybit in relation to the token scheme and the assets maintained on its platform.

Philip Bohmer Philip is a seasoned journalist that brings clarity to the complex world of cryptocurrencies through his articulate and insightful articles. His passion for blockchain technology fuels his writing, making him a trusted voice in the rapidly evolving digital currency landscape.